Aerated Water Company makes internal transfers at 180% of full cost. The Soda Re

Question

Aerated Water Company makes internal transfers at 180% of full cost. The Soda Refining Division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper. To reduce costs, the company located an independent supplier in Missouri who is willing to sell 30,000 containers at $22 each, delivered to Aerated Water Company's Shipping Division in Missouri. The company's Shipping Division in Missouri has excess capacity and can ship the 30,000 containers at a variable cost of $1.50 per container. What is the total cost to Aerated Water Company if the carbonated water is purchased from the local supplier?

A) $900,000

B) $1,200,000

C) $1,501,000

D) $1,620,000

Explanation / Answer

The cost of purchase from local supplier = 30000 * 30 = 900000

: the internal transfer cost @ 180% of full cost = 900000 * 180% = 1620000

Hence option D = $ 1620000 is the correct answer and is the total cost to the company

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